NLRB: Independent Contractor Misclassification Violates the NLRA

NLRB: Independent Contractor Misclassification Violates the NLRA

The Office of the General Counsel for the National Labor Relations Board ("NLRB") recently released an Advice Memorandum opining that an employer’s misclassification of employees as independent contractors in and of itself violates Section 8(a)(1) of the National Labor Relations Act (“NLRA”) because misclassification interferes with and restrains the employees' right to engage in protected concerted activity (such as seeking union representation) since independent contractors are not protected by the NLRA. Originally issued on Dec. 18, 2015, the Advice Memorandum recommended that the Regional Director issue a complaint in connection with an unfair labor practice charge against Pacific 9 Transportation, Inc. (21-CA-150875) which challenged the employer’s misclassification of employees as independent contractors.

The voluntary release of this Memorandum more than nine months after its original issuance is another signal that the NLRB intends to join the ranks of the DOL and the IRS in the agencies’ initiatives to curb employers’ use of independent contractors. In another Advice Memorandum published on March 22, 2016, the General Counsel published a list of “initiatives or policy concerns,” including “[c]ases involving the question of whether the misclassification of employees as independent contractors violates Section8(a)(1).” While the DOL and the IRS aim to extend minimum wage and overtime protections and to collect employment taxes wherever possible, the NLRB aims to extend the protections of the NLRA to as many workers as possible.

In Pacific 9, the employer explicitly asserted that the independent contractor classifications (which it continued to stand behind notwithstanding the Region’s determination to the contrary) shielded the company from the workers’ ongoing union drive because it claimed the workers were not statutory employees protected by the NLRA. The General Counsel’s determination in Pacific 9—that misclassification unlawfully chills the employees’ Section 7 right to engage in protected concerted activity—appears to turn on the specific facts of that case, where the employer explicitly relied on the misclassification to thwart the union’s organizing campaign. However, the Board could attempt to apply this rationale to any misclassification that has the effect of chilling or curtailing workers’ exercise of Section 7 rights, regardless of whether the employer intends to use the classification as a shield.

Best Practices

If your company classifies workers as independent contractors, the NLRB’s position that misclassification (even if unintentional) violates the NLRA, and its willingness to scrutinize employment classifications, could have significant implications for your business—even if you have no unionized employees or no current union activity. Given the Obama-NLRB’s record of anti-employer decisions, you can expect that independent contractor classifications will receive strict scrutiny. We encourage you to analyze the work done by any workers you have classified as independent contractors to be sure that the classification is correct and would withstand scrutiny by any of the government agencies.

For more detailed information or to address a specific question regarding how the board’s recent guidance affects you, please contact one of Taft’s Labor & Employment attorneys.